The enormous funding gap needed to address the UN Sustainable Development Goals stands at around $3.9 trillion each year. However, there is around $100 trillion of unused private and institutional money seeking returns every year. That’s a big pool of untapped capital out there waiting to be mobilized.

Government officials, NGOs, philanthropic organizations and financial institutions broadly agreed that blended finance structures will play an increasingly prominent role in delivering outcomes aligned to the UN Sustainable Development Goals (SDGs). We have seen a flurry of announcements on new blended finance initiatives. At the Business & Philanthropy Climate Forum at COP 28, three organizations collectively announced $5bn in blended finance commitments which are aimed at unlocking long-term capital of $20 million, turbocharging the climate transition in emerging economies. Then at this year’s World Economic Forum, the Luxembourg government joined the SDG Impact Finance Initiative founded in 2021 by the Swiss government and UBS Optimus Foundation to raise CHF 1 billion in capital towards the SDGs.

Blended finance is the use of catalytic capital from public or philanthropic sources to increase private sector investment in sustainable development. It allows organizations with different objectives to invest alongside each other while achieving their own objectives (whether financial return, social impact, or a blend of both).

Philanthropic or public capital is used strategically by incentivizing commercial investment with credit support structures, so private investors are offered an acceptable risk/return profile. This encourages them to commit additional private capital, thereby increasing the pool of available development funding. It mobilizes private capital towards high-impact social and environmental projects that may be overlooked by market rate capital.

At UBS Optimus Foundation, we have been thinking about the main trends in blended finance in 2024 and beyond.

  1. More nature, more climate finance
  2. More philanthropists are seeking to leverage private capital investments
  3. Measurement is Key
  4. Designing for local needs

Read the full article about trends in blended finance by Maya Ziswiler at Alliance Magazine.